As H-P scandal reaches peak, Hurd's still solid

SAN FRANCISCO (MarketWatch) -- Could Mark Hurd end up being the Teflon CEO? For the time being, Wall Street appears to think so.

Following what was by many accounts a contrite and apologetic appearance before Congress on Thursday, in which Hurd said that "mistakes were made" in how Hewlett-Packard Co. handled investigations into media leaks, H-P shares rose 72 cents, or 2%, to close Friday at $36.69.

H-P
HPQ, -1.74%
a Dow component, also had one of most-active stocks on the New York Stock Exchange with almost 23 million shares trading hands. In addition, analysts and industry watchers say that H-P's market and business performance is probably more dependent than ever on Hurd staying on as chief executive and managing the company's operations.

"The stockholders certainly seem to want him to stay in place," said Rick Steinberg, founder and principal of Steinberg Governance Advisors of Westport, Conn. "In terms of the hearing, he did an outstanding job, by admitting he made mistakes and apologizing for what happened."

Since H-P admitted on Sept. 6 that investigators working for the company engaged in pretexting -- or misrepresentation of their identities to obtain private information about H-P board members, employees and journalists -- there has been no shortage of blame or resignations from the technology giant. Chairwoman Patricia Dunn, general counsel Ann Baskins, senior counsel Kevin Hunsaker and former head of global-security operations Anthony Gentilucci have all left H-P. According to documents acquired by the House Committee on Energy and Commerce, each of them had some direct involvement in the pretexting case.

But Hurd, who at least knew of investigations taking place to find the boardroom leaks, rolls on, so far relatively unscathed by the matter. If anything, he has consolidated his position at H-P by taking on Dunn's role as chairman after she stepped aside earlier this month.

At the hearings, while Dunn refused to accept any responsibility for the pretexting scandal and fallout, Hurd took a more reserved tack -- saying that the matter "was not my finest hour," and pledging that such investigative methods will never be used by H-P again.

"I am in charge of the company. I'm responsible for H-P," he said. "I should have been able to catch [the investigation gone awry]. I didn't."

Without question, Hurd is still riding on a lot of credit he has received for helping to turn around H-P in the 18 months since he took over from Carly Fiorina, the ousted chairwoman and chief executive. He instituted job cuts of 15,300 employees, or about 10% of H-P's workforce, as part of an effort to reduce overall company costs. But Hurd phased those cuts over 18 months so as not to provide such a huge shock to H-P, which had been reeling for years from what many saw as a floundering, if not failed, $19 billion acquisition of Compaq in 2002.

Since Hurd came on the job, H-P's stock has risen 87%. Analysts following the company say that the stock should continue to benefit from what is seen as the chief executive's conciliatory congressional appearance and steady leadership.

Hurd "appeared to satisfy the committee's desire for someone to take accountability, yet he also distanced himself from the pretexting activities," said Richard Farmer of Merrill Lynch.

Farmer, who holds a buy rating on H-P's stock, added that Hurd's position at H-P "is further solidified" following his congressional appearance, and that "investor sentiment will improves on the issue and the focus will begin to shift back toward [business] fundamentals."

Daniel Renouard of Robert W. Baird, who rates H-P's stock as outperform, called Hurd's testimony "credible and [we] expect Hurd will weather the storm."

But Renouard was even more blunt about how the pretexting matter will impact the chief and H-P. The analyst said that he came to this conclusion after surveying enterprise-storage customers about the scandal at a recent industry conference.

"Customers don't care," Renouard said, adding that those same customers said "the scandal had no impact on [their] willingness to purchase H-P products."

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